Speaker 1: Hello, and welcome to another episode of the Odd Thoughts podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe. Joe. What's going on
Speaker 1: in Russia? That is such start and it was more
Speaker 1: than a leading question, like the idea that I would
Speaker 1: be able to like answer that in any meaningful way
Speaker 1: that doesn't make me sound like a complete idiot. I'm
Speaker 1: not trying to set you up to sound like an
Speaker 1: idiot trying. I'm trying to start the podcast with a
Speaker 1: summary of current events. But there was some big news
Speaker 1: out of Russia recently, which was they were calling up
Speaker 1: reservists and basically forcing them to go to Ukraine and
Speaker 1: fight in the war. And the reason I bring it
Speaker 1: up is because it wasn't just big topical geopolitical news,
Speaker 1: but it became a big thing in the market as well.
Speaker 1: We saw a bit of reaction to it, and it
Speaker 1: kind of crystallized in my mind this idea about just
Speaker 1: how hard it is for investors to try to judge
Speaker 1: these geopolitical risks, because on the one hand, I saw
Speaker 1: some people going, you know, this is great for the West.
Speaker 1: It means that Putin is really struggling right now and
Speaker 1: Ukraine is going to win the war and everything's going
Speaker 1: to be fine. And then I saw some commentary basically
Speaker 1: saying this is a massive escalation and if anything, we
Speaker 1: should be seeing risk premia on things like European assets
Speaker 1: and natural resources and grains and things like that actually
Speaker 1: going up. So the fact that there were these two
Speaker 1: extremely different interpretations of the same move just really struck me. Yeah,
Speaker 1: I mean, look, it's so hard to understand like what
Speaker 1: this means for markets. It feels like we're in some
Speaker 1: sort of uncharted territory. And maybe some people will perceive
Speaker 1: that to be positive of that Russia has suffered setbacks
Speaker 1: and its war, that it's laws some territory that it
Speaker 1: had captured in Ukraine. But then others will say, you
Speaker 1: know this, as you say, this is massively increased the risks.
Speaker 1: Vladim Reputin give a speech that was widely perceived to
Speaker 1: be highly bellicost I think it's just a sense of
Speaker 1: like extreme uncertainty and casts and there's already so much
Speaker 1: going on. We're recording this September when there's just so
Speaker 1: much concern about inflation and energy and monetary policy and
Speaker 1: recession and all these other things. And on top of
Speaker 1: the huge geopolitical wild card. Again, I feel like many
Speaker 1: investors are truly swimming and see experiencing things that they
Speaker 1: have never seen in their careers. Right. And it's funny
Speaker 1: kind of how earlier this year, how many investors suddenly
Speaker 1: stood up and declared themselves to be like military experts
Speaker 1: in World War Two, armchair strategists. But even if you
Speaker 1: think you know everything about how a military invasion actually works,
Speaker 1: that doesn't naturally try insulate itself into well, here's my
Speaker 1: investment strategy playing off of that. So in an effort
Speaker 1: to understand exactly what is going on with Russia and Ukraine,
Speaker 1: and also in an effort to understand exactly what it
Speaker 1: might mean for investors, we're going to be speaking with
Speaker 1: Marco Paypitch. He is the partner and chief strategist at
Speaker 1: clock Tower Group. He is also the author of Geopolitical
Speaker 1: Alpha and Investment Framework for Predicting the Future, so he
Speaker 1: basically wrote the book on this topic. Marco, thank you
Speaker 1: so much for coming on all thoughts. It's such a
Speaker 1: pleasure and honor. I love the show, so it's great
Speaker 1: to be on. Thank you. So, maybe just to begin
Speaker 1: with Russia calling up its reservist what was your initial
Speaker 1: take on that. Your interpretation, Well, I mean, I think
Speaker 1: that it's clearly a sign that things have not gone
Speaker 1: well for Russia In Ukraine, Russia has a professionalized military force.
Speaker 1: In thirty years of post Soviet reforms, like thirty years
Speaker 1: of effort to reform, Russian military has focused on deepening
Speaker 1: and strengthening its strategic rocket forces, so nuclear weapons for
Speaker 1: good reason, and creating a professional expeditionary force they can
Speaker 1: fight quick, short wars and it's near abroad, such as
Speaker 1: the Two Georgia intervention as a case in point. And
Speaker 1: so the fact that they now have to like revive
Speaker 1: the third pillar, which they have eroded on purpose and
Speaker 1: for good reason, like we're not gonna need to mobilize
Speaker 1: ever again, we have nukes, No one's gonna attack us.
Speaker 1: The fact that they're now like resorting to something that
Speaker 1: they've actually let follow, that they've not focused on, that
Speaker 1: they've erode it in the effort to strengthen the other
Speaker 1: two parts of their reforms. It that just tells you
Speaker 1: that it is a desperate move and it's not clear
Speaker 1: to me that it's going to effectively escalate the war.
Speaker 1: So my initial reaction was that this is a nothing burger,
Speaker 1: you know, it's a geopolitical nothing burger, if you will,
Speaker 1: because at best, Russia can you let's say, a hundred
Speaker 1: thousand to maybe three hundred thousand troops if they managed
Speaker 1: to get them all activated as rearguard, they can help
Speaker 1: support supply lines, they can defend the rear of Russian forces,
Speaker 1: allowing the veterans in the professionals who have been fighting
Speaker 1: at Ukraine to step up and defend against the Ukrainian offensive.
Speaker 1: I think this gets us faster to an equilibrium, to
Speaker 1: a stasis, to an established line of control. I don't
Speaker 1: think this allows Russia to really effectively widen the conflict
Speaker 1: in Ukraine. So what does this stasis or equilibrium look
Speaker 1: like in your view? So that's a very important question, Joe,
Speaker 1: and I think it's a controversial view that I that
Speaker 1: I hold. But basically, most wars that don't end in
Speaker 1: a capitulation of one side to another end up in
Speaker 1: some form of a stasis where a line of control
Speaker 1: is established. It's a geographical reality where the two forces
Speaker 1: basically establish, you know, a front line that ossifies that
Speaker 1: is well defended. Think about the Korean War, you know,
Speaker 1: the Korean War has not ended. It is still going on.
Speaker 1: There has not been a piece treaty between the two Koreas,
Speaker 1: but the two Koreas are de facto sovereign entities defined
Speaker 1: by a line of control that was established at the
Speaker 1: end of the conflict. The Cyprus conflict, you know, which
Speaker 1: basically pitted the Greek supported Cyprus versus the Turkish supported
Speaker 1: Northern Cypriots, ultimately ended in a line of control, and
Speaker 1: the country Cyprus has a line of control that in
Speaker 1: de facto terms creates the Northern Turkish Cyprus you know,
Speaker 1: which is not recognized but is a political entity that exists.
Speaker 1: Another conflict that basically ended in a line of control.
Speaker 1: The Data and Peace Accord in Bosnia was also concluded,
Speaker 1: and the current you know, split between Republic of Cerpska
Speaker 1: and the Federation the Bosnia Herstago in the Federation of
Speaker 1: the Cross and the Muslims is defined by a line
Speaker 1: of control. And usually what happens at the end of
Speaker 1: the war, as both sides are getting exhausted, they accelerate
Speaker 1: their military maneuvers in an effort because they know what's coming,
Speaker 1: and what's coming is some sort of negotiated ceasefire that
Speaker 1: will establish borders for a long time. So what you
Speaker 1: do is you accelerate offensives. We saw that ahead of
Speaker 1: the dat and Accords and after the Data Accords in Bosnia,
Speaker 1: where the Serbs went on a huge offensive trying to
Speaker 1: establish as much territory as they could before the bargaining began.
Speaker 1: And I think that's what's happening right now. We're in
Speaker 1: the stage where the Ukrainians are trying to get as
Speaker 1: much as they can through their offensive, and the Russians
Speaker 1: are responding by saying, like, we need to halt this
Speaker 1: offensive because when the line of controls is established, we
Speaker 1: need to prove domestically to the Russian population that the
Speaker 1: war was worth it and that we acquired some form
Speaker 1: some territory. So I think that's what's happening right now.
Speaker 1: And a lot of the commentary out there is basically
Speaker 1: saying the war is going to last forever. Now that
Speaker 1: may objectively be true, just so we're clear, Like again,
Speaker 1: Korean War still going on, guys, like it's never been
Speaker 1: They never ended. So while you know, armchair geopolitical strategists
Speaker 1: may be right that this war may continue forever, I
Speaker 1: think the market has stopped caring about this war. Honestly,
Speaker 1: I think like three months ago. Yeah, yeah, I kind
Speaker 1: of agree with that. And this sort of goes back
Speaker 1: to Joe when we were talking about China and the
Speaker 1: idea that in a normal environment, everyone would be talking
Speaker 1: about basically the Chinese economy being well, large parts of
Speaker 1: it being closed, that impacting manufacturing, the housing crisis in China,
Speaker 1: But there's so much going on in developed markets with
Speaker 1: yields and inflation that it just seems to have fallen
Speaker 1: by the wayside. And a similar thing with Russia. Even
Speaker 1: though these two very big developments China and Russia are
Speaker 1: arguably driving the inflation situation, I would argue that China
Speaker 1: is very relevant still from a macro perspective. I mean,
Speaker 1: one of the reasons I've been shorten commodities since May
Speaker 1: is China. You know, we have a very barshue of China.
Speaker 1: But Russia. I think the Russian involvement in this war
Speaker 1: has led to some of the most fantastical and I
Speaker 1: would argue idiotic cell side research I've ever read in
Speaker 1: my life. I mean, look, this is this is a
Speaker 1: profound moment in world history. I don't want to understate that.
Speaker 1: But the argument that this war is going to cause
Speaker 1: some servi calamity in the commodity markets has been epically wrong.
Speaker 1: I mean, look at the chart of like Brent in wheat,
Speaker 1: they are down to pre war levels. I mean, Brent
Speaker 1: has fallen now about four or five in September twenty three,
Speaker 1: just as the date check. So people know, but you know,
Speaker 1: there are far more important things going on in the
Speaker 1: world than the Russia Ukraine conflict for the macro, like
Speaker 1: the big macro assets, namely what the FED is doing.
Speaker 1: And of course I would argue China to the slowdown
Speaker 1: in the US economy and so on. So I think
Speaker 1: one of the biggest mistakes I think that a lot
Speaker 1: of cell side research did at the beginning of this
Speaker 1: war is imply apply loss of commodities out of Russia,
Speaker 1: and that had to do with the EU oil embargo.
Speaker 1: Very quickly after the EU oil embargo was imposed in Russia,
Speaker 1: it became clear to me at least that it was
Speaker 1: a PR effort. Like the EU embargo against Russia, the
Speaker 1: Western embargo against oil is a PR effort. It is
Speaker 1: not a genuine effort to remove Russia's oil revenue. Why
Speaker 1: do I say that because when the U S imposed
Speaker 1: sancial against Iran, it also imposed secondary sanctions which are
Speaker 1: very effective. So if you're a Chinese or an Indian
Speaker 1: company wanted to buy Iranian crude, you are at risk
Speaker 1: of running a file of the US Justice Department with Russia.
Speaker 1: That was like maybe debated for a week and then
Speaker 1: everybody was kind of like, yeah, let's not do that.
Speaker 1: Why because the oil embargo against Russia is designed, with
Speaker 1: its six month implementation phase to literally allow Russia to
Speaker 1: find other customers literally, and that's happened beautifully. There's no
Speaker 1: loss of supply at the Russia. There might be at
Speaker 1: the end of the year maybe five thousand, three hundred
Speaker 1: thousand barrels, but that's it. And given the demand problems
Speaker 1: with China and US slowdown, like who cares about that?
Speaker 1: So there's there was a huge overstated risk of like
Speaker 1: the shuttings of production of Russia, problems with logistics. None
Speaker 1: of that has happened. And the reason is that, you know,
Speaker 1: at the end of the day, Manuel Macron and Schultz
Speaker 1: and the other leaders of Europe simply wants to be
Speaker 1: able to say, at the end of the year, we're
Speaker 1: not importing any more oil from Russia. The fact that
Speaker 1: China and India are gorging themselves, bathing themselves in Russian
Speaker 1: crude is not like a bug. It's a feature of
Speaker 1: the sanctions. And so that's the first issue that I
Speaker 1: think overstated the relevance of the conflict. The other one
Speaker 1: is the idea that Russians have an existential that that
Speaker 1: Ukraine is somehow existential to Russia, you know, and that
Speaker 1: and that comes from reading some of the President Putin's
Speaker 1: essays and so on, and I would argue that it isn't.
Speaker 1: And but this is more than the philosophical question, because
Speaker 1: if you're an investor and you think that Ukraine is
Speaker 1: existential to Russia, then you think they will double, triple,
Speaker 1: quadruple down on the conflict. But if you understand that
Speaker 1: Ukraine and the war in Ukraine is merely a way
Speaker 1: to export domestic political angst abroad, if that is your perception,
Speaker 1: then yeah, this conflict could very well taper off interstasis
Speaker 1: and you know, just be one of many conflicts that
Speaker 1: we're going to experience in this new era of geopolitical multiplarity.
Speaker 1: You mentioned that several commodities are actually lower than they
Speaker 1: were at the beginning of the war, and oil is
Speaker 1: more or less there, and wheat has come off a lot.
Speaker 1: The one other thing, though, that does feel very central
Speaker 1: and very central to macro is what happened with the
Speaker 1: future of natural gas. And we know that supplies have
Speaker 1: been diminished, right, I believe between the pipeline has been
Speaker 1: curtailed and electricity prices, gas prices in Europe are insane,
Speaker 1: and we've been talking a lot about how they're going
Speaker 1: to get through the winter and how what's going to
Speaker 1: happen in the following winter and so forth. What do
Speaker 1: you see on the natural gas front? And do you
Speaker 1: see you know, the thing I've been thinking about is
Speaker 1: this sort of re orientation of the world such that
Speaker 1: in the future it seems likely that Europe will continue
Speaker 1: to get a lot more of its gas from the
Speaker 1: United States. It seems like a pretty big significant restructuring
Speaker 1: of world energy flows. So there's I think three things
Speaker 1: that we need to discuss here. First is the short
Speaker 1: term price of natural gas. You know, in the short term,
Speaker 1: Europe has had to find alternatives to Russian natural gas,
Speaker 1: and those alternatives have been extremely expensive, and that has
Speaker 1: driven up the prices. We all understand that. Um, there's
Speaker 1: a couple of things that is interesting to me. First
Speaker 1: of all, if the war in Ukraine was so existential
Speaker 1: to Press and Putin, why did he not cut off
Speaker 1: natural gas early, you know, in March or April. Why
Speaker 1: did he wait until the late summer to really do that.
Speaker 1: It seems like an error, or maybe it seems like
Speaker 1: an effort to maintain a relationship with Europe so that
Speaker 1: you can't turn the pipes back on once you proclaim victory. However,
Speaker 1: modified those goals maybe later on. The second thing that
Speaker 1: I think President Putin didn't expect is the slowdown in China.
Speaker 1: The slowdown in China allowed there to be sufficient amount
Speaker 1: of lergy cargoes floating around for for Europe to to
Speaker 1: kind of grab you know. That was another miscalculation. Now,
Speaker 1: the short term spikey natural gas prices is currently being
Speaker 1: extrapolated by a lot of investors into other assets, such
Speaker 1: as euro which is a parody, although that's for other
Speaker 1: reasons to the Fed hawkishness and so on, but like
Speaker 1: the EU is a good example. Or for example, if
Speaker 1: you look at eurostock six hundred industrial sector relative to
Speaker 1: SMP five hundred industrials. They're at like decade lows, you know.
Speaker 1: I mean, basically the industrial is nation is being priced
Speaker 1: in as investors extrapolate current natural gas prices into the future.
Speaker 1: I think that's like stupid, you know, because the current
Speaker 1: increase in natural crisis natural gas prices in Europe is unsustainable.
Speaker 1: It's a short term issue, and it's unsustainable for a
Speaker 1: number of reasons. First of all, if the Ukraine War
Speaker 1: entered stasis, if it ossifies along a line of control,
Speaker 1: it is no longer in Russia's interest or Europe's interest too,
Speaker 1: for from Russian perspective, not make the money off of
Speaker 1: natural gas, from Europe's perspective, to continue to shoot itself
Speaker 1: in the knee by not accepting Russian natural gas. So
Speaker 1: once the war ossifies, which I think is coming within months,
Speaker 1: there is going to be an incentive to resolve this
Speaker 1: this impasse. And so that's the first issue. The second,
Speaker 1: more longer term issue is what happens, as you mentioned, Joe,
Speaker 1: as America becomes more involved in the l en G trade.
Speaker 1: Presumably the US is going to export natural gas in
Speaker 1: order to benefit from a global price of natural gas,
Speaker 1: which is extremely higher in the domestic price. By the way,
Speaker 1: Russia has fifty bcm of lergy capacity coming online in
Speaker 1: a couple of years, which is ironic because it means
Speaker 1: Russia will be sending those cargoes to European ports, even
Speaker 1: though it won't be sending it through pipelines. I mean,
Speaker 1: this is kind of like the cynical view of what's
Speaker 1: going to happen over the next couple of years. But
Speaker 1: why is this important? It's really important because if you're
Speaker 1: an investor right now betting on the industrialization of Europe,
Speaker 1: don't you realize what's going to happen in the next
Speaker 1: couple of years. What's gonna happen in the next couple
Speaker 1: of years is we're going to get the Brent price
Speaker 1: of of natural gas. We're gonna have a global price
Speaker 1: of natural gas, which will be the len G globally
Speaker 1: traded price, which will raise costs domestically in the US.
Speaker 1: It won't lower them, it will raise them, and that's
Speaker 1: going to be a disadvantage to American industry, not European.
Speaker 1: European prices of natural gas will start to approach and
Speaker 1: approximate that of the US and vice versa, which will
Speaker 1: be a headwind to US manufacturing. And the final issue
Speaker 1: that I would point out is something that a lot
Speaker 1: of again investors are ignoring. Europe has had higher electricity
Speaker 1: prices for industrial users for two decades, Like I have
Speaker 1: a chart of that. This is obvious, and yet Germany
Speaker 1: has not lost any export share, nor has America gained
Speaker 1: export share. So undwind that for a second. For the
Speaker 1: last two decades, thanks to the Shaale Revolution, the United
Speaker 1: States has had a price advantage on electricity and natural gas.
Speaker 1: It's done nothing with that price advantage. Nothing, It's gained
Speaker 1: no competitiveness. So why would you extrapolate the current crisis,
Speaker 1: which as I say, is temporary, into the future and
Speaker 1: somehow beat against the European industry. Now, obviously there are
Speaker 1: certain industries you know, that are going to move to
Speaker 1: the US, those that use natural gas as a feat stock.
Speaker 1: And you know, we can sit here and be like,
Speaker 1: oh my god, you know, like European fertilizer sector is done.
Speaker 1: Let's short Europe. I mean, you know, sure there will
Speaker 1: be parts of the industrial capacity of Europe they will
Speaker 1: have to move because natural gas is a feed stock.
Speaker 1: But I'm not betting against European industry. Because of this crisis.
Speaker 1: In fact, I love the valuation. If you're a long
Speaker 1: term investor, you plow every time you have into European industry,
Speaker 1: especially because Wall Street Journal has, you know, an article
Speaker 1: yesterday saying like Europe is the industrializing, this is in
Speaker 1: the price guys, And I think it's completely an unsophisticated
Speaker 1: view extrapolating linearly a current crisis into the future, which
Speaker 1: makes no sense. So maybe just to back up for
Speaker 1: a second, how should investors be approaching geopolitical risk and
Speaker 1: conflict in general? And then secondly, is there something about
Speaker 1: the Russia Ukraine conflict that makes it different because it
Speaker 1: involves so many commodities and inputs. Yeah, So to to
Speaker 1: answer the first question, there's a couple of things. First
Speaker 1: of all, you know, there's there's a concept that I
Speaker 1: call geopolitical alf which is when the market miss prices
Speaker 1: risks either to the observative onside, and then you know
Speaker 1: you can profit by generating returns. But there's also geopolitical data,
Speaker 1: which is understanding the long term trends and trying to
Speaker 1: figure out how to write them. In case of Ukraine,
Speaker 1: what I would say is that investors confuse objective measure
Speaker 1: of geopolitical risk with the market's interpretation of it. So
Speaker 1: let's assume that the objective measure of geopolitical risk is
Speaker 1: an oppera case G. This measure, you know, which we're
Speaker 1: theoretically talking about here, can basically stay elevated. But if
Speaker 1: it no longer moves up, if it's not increasing, if
Speaker 1: it's just elevated, the lower case G, which is the
Speaker 1: geopolitical risk premium associated with assets, is going to collapse
Speaker 1: because lower case G is a derivative of upper KASSEG.
Speaker 1: Now let's apply that to Ukraine. You can conflict happens
Speaker 1: catches most investors off card on everyone but most the
Speaker 1: opperac case G goes up their stock of nuclear exchanges.
Speaker 1: Right now, there's a Ukrainian offensive, there's a mobilization. You
Speaker 1: could argue that opera case G the objective measure of
Speaker 1: geopolitical risk, the actual reality on the ground, the political
Speaker 1: geopolitical reality is still elevated, but it hasn't really increased
Speaker 1: as a risk. Why because on March twenty five, Russians
Speaker 1: withdrew from all of northern Ukraine because they have been ineffective.
Speaker 1: Investors are starting to realize there's material constraints to Russia
Speaker 1: in effectively pursuing this war. I think there will also
Speaker 1: be proof that Ukrainian offensive will be halted due to
Speaker 1: their own constraints. So the lower case G, which is
Speaker 1: the derivative of geopolitical risk, the geopolitical risk premium that
Speaker 1: the markets are pricing on assets, starts to collapse even
Speaker 1: if operacase geo objective measure is flat but still elevated.
Speaker 1: So that's the first thing that I think is important
Speaker 1: for investors to realize. We're now in this multipolar world.
Speaker 1: We're gonna have a lot more wars between you know,
Speaker 1: regional powers. This is what political science teaches us in
Speaker 1: a world would know one or two bullies to kind
Speaker 1: of keep everyone in line to every country for itself.
Speaker 1: This is a very late nineteenth century, early twentieth century
Speaker 1: kind of a world. And in this world, investors have
Speaker 1: to become comfortable with this concept, which is that, yes,
Speaker 1: the war may still be going on. The news may
Speaker 1: still show refugees and civilian casualties and and a lot
Speaker 1: of bad stuff, but the market desensitizes and doesn't care
Speaker 1: unless new information somehow meaningfully raises objective geopolitical risk. That's
Speaker 1: the first thing. The second thing that I think we
Speaker 1: need to think about in terms of commodities. Yes, this
Speaker 1: is a different war, Tracey. Had totally agree with you,
Speaker 1: And my biggest fear when the war started was that
Speaker 1: Russia would play the role of OPEC from nineteen seventy three.
Speaker 1: So in the initial phases of the war, I was
Speaker 1: bullish oil, and then basically by May they refused to
Speaker 1: curtail their all exports. So I think that the EU
Speaker 1: oil embargo, the Western oil embargo, is a forest. I
Speaker 1: think it's a pr effort, and so I faded that
Speaker 1: from day one. But I was concerned that Russia would
Speaker 1: actually then aggregate its own oil supply. And by the way,
Speaker 1: it would kind of make sense. They can probably make
Speaker 1: money on the price even if they're volume declines. Why
Speaker 1: not why not curtailed two million barrels? If I was
Speaker 1: running Russia, if I was advising President Putin, that would
Speaker 1: have been like, Hey, you know, why don't we just
Speaker 1: threaten it. Why don't we cut the million here, two
Speaker 1: million there? Now they haven't done it, and I think
Speaker 1: that that suggests there are constraints to curtailing your exports
Speaker 1: that OPEC did not have in the nineteen seventy three
Speaker 1: and so I doubt that they're going to pull that
Speaker 1: lever going forward. What are those constraints, Well, OPEC wasn't
Speaker 1: fighting against Israel in the Young Kippur War. It was
Speaker 1: Egypt in Syria. So a lot of the open countries
Speaker 1: that were on the sidelines, they had surpluses and they
Speaker 1: have access revenue, and they could curtail all exports. Russia
Speaker 1: is prosecuting award. It's very expensive. You know, the United
Speaker 1: States of America, fighting a much simpler war in Iraq
Speaker 1: in two thousand three and two thousand four, spent like
Speaker 1: two billion dollars in those two wars, more or less
Speaker 1: in the first two years. Russia is probably spending more
Speaker 1: if we associate the economic costs of sanctions. Nobody's sanctioned
Speaker 1: the US in two thousand three and two thousand four,
Speaker 1: you know, like Russia. This is an expensive war for Russia.
Speaker 1: So that's the first issue. That's why I don't think
Speaker 1: I don't think they will curtail their own oil exports.
Speaker 1: The second issue is that they don't want to anchor
Speaker 1: their own allies like India and China, who I'm sure
Speaker 1: told President Putin in shangha In in Uzbekistan at the
Speaker 1: recent Shanghai Corporation Organization meeting, like, hey, you can do
Speaker 1: whatever you want in Ukraine, but do not curtail all exports.
Speaker 1: And the third issue is that I think Russians and
Speaker 1: just stand that if they do curtail they're all exports,
Speaker 1: Saudi Arabia, which has been playing nice with them, will
Speaker 1: take their market share at that point. I think there's
Speaker 1: also internal elite isssues. You know, I'm not sure that
Speaker 1: Mr Igor Sechion, who runs the energy clique in Russia,
Speaker 1: is cool with leaving money on the table so that
Speaker 1: Putin can pursue his war in Ukraine. I think there
Speaker 1: are problems also within the Kremlin of this issue. But
Speaker 1: the fact of the matter is that Russia has not
Speaker 1: been willing to curtail globally relevant commodities. Now Europe is
Speaker 1: a different question. They've done it to Europe, but that's
Speaker 1: a sequestered com commodity. The Yamal Peninsula natural gas is
Speaker 1: sequestered in the Yamal Peninsula and the only delivery mechanism
Speaker 1: for that hundred bcm of natural gas is pipelines. To Europe,
Speaker 1: So it matters for Europe, it doesn't really matter for
Speaker 1: the world oil exports. Russia has refused to curttail, and
Speaker 1: you know, it's September. They haven't done it for now
Speaker 1: what seven months. I think that tells you they won't
Speaker 1: do it. You know, you mentioned just how expensive this
Speaker 1: war has been so far for Putin, and you also
Speaker 1: mentioned that a lot of people were caught off guard
Speaker 1: by Russia actually invading Ukraine this year. And I think
Speaker 1: you correct me if I'm wrong, but I think you
Speaker 1: were one of those people who had assigned a relatively
Speaker 1: low probability to the possibility of a full blown invasion.
Speaker 1: Could you maybe walk us through, like what exactly did
Speaker 1: people get wrong? Because I think, you know, a lot
Speaker 1: of the hypothesis seems to have been correct, like Putin
Speaker 1: has a lot to lose if Russia actually invades, and
Speaker 1: it's going to be very expensive and a difficult military conflict,
Speaker 1: and Russia is going to grow even more isolated. So
Speaker 1: all of those were right, but they don't seem to
Speaker 1: actually have inhibited Putin's behavior. Yeah, so my framework for
Speaker 1: forecasting geopolitics focuses on material constraints and um I wrote
Speaker 1: a whole book on that, and uh, you know, my
Speaker 1: my message to investors is this isn't a full proof method.
Speaker 1: I mean, you're not going to be right, but it
Speaker 1: allows you to start with something that is meaningful, objective,
Speaker 1: and measurable. So instead of starting trying to like throw
Speaker 1: darts at the board of policymaker preferences, talking to you know,
Speaker 1: consultants who presumably have insights into the inner workings of
Speaker 1: the mind of people like Putin or she, start with
Speaker 1: something that you, as an investor can actually like do yourself,
Speaker 1: which is, look at the material constraints to the policymakers,
Speaker 1: and policymakers will most of the time pursue a path
Speaker 1: of least resistance, political path of least resistance like water
Speaker 1: coming down the hill. That's basically the framework Employe. Now
Speaker 1: occasionally policy makers say, well cool, thanks for that framework, Marco,
Speaker 1: but I'm going to pursue my preferences. So I I
Speaker 1: signed fifty percent probability to conflict in in Ukraine, I said, look,
Speaker 1: it's it's I hate doing fifty fifty, but this is
Speaker 1: a close call. Maybe Putin does it, maybe he doesn't.
Speaker 1: But if he does, here's how it's going to play out,
Speaker 1: and that part here's how it's going to play out,
Speaker 1: has played out basically exactly as I expected. Like And
Speaker 1: one of the reasons that I said that this would
Speaker 1: be really bad idea for a president and Putin is
Speaker 1: that Russia doesn't have a military that can successfully execute
Speaker 1: this kind of operation. So, you know, like there's an
Speaker 1: objective fact Russian military sucks, like sorry, but it does.
Speaker 1: It has no evidence over the last twenty years of
Speaker 1: being successful. Its intervention in Syria was a very high
Speaker 1: r o I because they did it smartly. They sent
Speaker 1: some Suhois like you know, four year airplanes to help
Speaker 1: phar al Assad and that was it. Two thousand and eight.
Speaker 1: In Georgia, they were attacking a country that like doesn't
Speaker 1: have any you know, mechanized armor. So they've been very
Speaker 1: smart in how they were deploying their military. Over the
Speaker 1: last twenty years, Putin has been very risk converse high
Speaker 1: geopolitical r o I. And so the idea that he
Speaker 1: would invade a country three times the size of Iraq
Speaker 1: would double the population and we'd know and with a
Speaker 1: very hostile a view towards Russian invasion, unlike Iraq, by
Speaker 1: the way where seventy of the population was either Shia
Speaker 1: or occurred and was therefore quite welcoming to the initial
Speaker 1: American invasion. The point was the constraints were massive on
Speaker 1: on Putin. Now, obviously, in this particular case, the reason
Speaker 1: I got the decision wrong is because I write investment
Speaker 1: research on the beach in Santa Monica, and President Putin
Speaker 1: is the president of Russian Federation, so he gets to
Speaker 1: decide what he does. Um. But the value in the
Speaker 1: constraint framework is that as an investor, if you get
Speaker 1: the initial decision by policy maker wrong, your framework is
Speaker 1: still useful. You don't have to adjust it. You just
Speaker 1: say like, okay, well, prossmakers ignored it. There may be
Speaker 1: unaware of their constraints. They're about to find out what
Speaker 1: those constraints are. And so the last seven months has
Speaker 1: been President Putin and Russian leadership becoming intimately aware of
Speaker 1: the material constraints as they have articulated themselves in objective reality.
Speaker 1: And it's been a beautiful thing to watch because it
Speaker 1: shows the benefit of having a framework in thinking about politics. Yeah,
Speaker 1: you get the initial thing maybe wrong, you know, And
Speaker 1: it's not like I was yellowing and going like long
Speaker 1: ruble by the way, I mean I had a hedge on,
Speaker 1: you know, like my recommendation was go long wheat and gold.
Speaker 1: You know, I think those would outperform if there's an intervention.
Speaker 1: Gold was wrong, Wheat was kind of right. Um. But
Speaker 1: the point is, like then when it happens, you have
Speaker 1: a view of how the reality will develop given the constraints,
Speaker 1: unless you got the constraints wrong obviously, in which case,
Speaker 1: you know, like half of Ukraine would not be conquered
Speaker 1: by Russia if the constraint framework had really failed me.
Speaker 1: So that's that's a really interesting lesson, I think for
Speaker 1: myself and for anyone who wants to use a systematic
Speaker 1: approach to politics and geopolitics. It's not about getting events right.
Speaker 1: It's about getting the markets right. And you can still
Speaker 1: double down on your view if you get the constraints right.
Speaker 1: In fact, the market will become even more stretched and
Speaker 1: the alpha opportunities will be even greater. I want to
Speaker 1: go back to what potential stasis looks like, and you
Speaker 1: mentioned that, you know, in your view, a big part
Speaker 1: of Putin's motivation at this point has been the sort
Speaker 1: of export of domestic political angst and that the mobilization,
Speaker 1: which has got a lot of headlines, is partly out
Speaker 1: of an impulse to show that something is being accomplished.
Speaker 1: What is it? What is uh stasis look like or
Speaker 1: what type of stasis is acceptable from Zelenski's point of view,
Speaker 1: because of course he's also had rhetoric about not seating
Speaker 1: any territory, any ground whatsoever. But obviously some parts of
Speaker 1: Ukraine are in fact controlled and likely to stay controlled,
Speaker 1: it would seem by Russia. What does what is sort
Speaker 1: of a reacceptable stasis from the Ukrainian perspective, Well, we
Speaker 1: know what the acceptable stasis is from the Russian perspective,
Speaker 1: because they told us to March twenty five. On March
Speaker 1: twenty five, the Russian Defense Ministry proclaimed victory, which was
Speaker 1: of course like a joke because they, you know, they
Speaker 1: got their butt handed to them in northern Ukraine. They
Speaker 1: withdrew from Kharkiev, Shernikiev and Kiev. More or less, they
Speaker 1: retained some territories in her Kiv which they've not lost.
Speaker 1: So they we drew from those northern parts of Ukraine,
Speaker 1: they abandoned the assaulting Kiev, and they basically said, oh,
Speaker 1: you silly Westerners, you guys thought we were trying to
Speaker 1: get to Kiev. F that was all a ruse, you know,
Speaker 1: like we got you. And then they told us that
Speaker 1: they're not going to focus on dom Bas, which are
Speaker 1: the oblasts of Luhansk in Donetsk, and then the land
Speaker 1: bridge to Crimea, which are the oblasts of Herson and Zaparigia.
Speaker 1: So that's it. Like their goals now are not the
Speaker 1: Nazification of Ukraine, whatever that means. It's not conquering everything
Speaker 1: east of the Naper as many people thought, because they
Speaker 1: were doing the Spincer maneuver, which is the yoddic. Ukraine's
Speaker 1: the size of Western Europe. Russia tried to do a
Speaker 1: Pencer maneuver with two hundred thousand troops. It's it's like
Speaker 1: it's like they never played risk, you know, like my
Speaker 1: kids know not to spread your troops out across different countries.
Speaker 1: You everybody in my household knows, when you get your
Speaker 1: big reinforcement push, you make one line of attack and
Speaker 1: you like sweep through it. But apparently, you know, Putting
Speaker 1: in his generals thought that it would be cool for
Speaker 1: Russian TV if they had you know, airborne invasion and
Speaker 1: like they had an amphibious assault, and it was all
Speaker 1: like very much like it was like Brockheimer produced invasion.
Speaker 1: It was. It was quite ridiculous and it will go
Speaker 1: in the annals of history as I think one of
Speaker 1: the biggest military blunders ever. But look, the point is cool,
Speaker 1: they readjusted what they want and we know what the
Speaker 1: Russians not wants. Um Now the problem for them politically
Speaker 1: is Donetsk. If you look at the map of conquered territory,
Speaker 1: there's still a very large chunk of the Oblast of
Speaker 1: don Netsk, not the city, but the oblast of Venaska
Speaker 1: is held by Ukrainians. And I think the only reason
Speaker 1: President Putin has not raised the Mission Accomplished banner. The
Speaker 1: only reason he hasn't done that is that that is
Speaker 1: a source spot in the geography of what they have conquered.
Speaker 1: That's a delay, you know. And throughout the summer they've
Speaker 1: failed to deal with this like the territory, and I
Speaker 1: don't know if they ever will. They might have to
Speaker 1: proclaim victory with half of this oblast, which is an embarrassment.
Speaker 1: By the way, Donatsk is surrounded by Russia. It's populated
Speaker 1: by ethnic Russians, not majority but like a good chunk
Speaker 1: of it. And so the fact that they've been incapable
Speaker 1: of winning in the oblast of Donatsk is beyond mind boggling.
Speaker 1: It's it's it's stupendous that Russia can't do this. But
Speaker 1: going back to your point, Joe, which is important, what
Speaker 1: does Ukraine want? Well, Ukraine wants a lot. I think
Speaker 1: the Ukraine wants the recovery of all of its territories,
Speaker 1: including Crimeum. But you know, I want rock hard abs
Speaker 1: and I'm working really hard to get them, but it's
Speaker 1: not gonna happen. And so constraints are far more important
Speaker 1: than preferences. And I know it's not politically correct to
Speaker 1: say this, because you know, we're all obviously like this
Speaker 1: is the West, we all have a pro Ukrainian bias.
Speaker 1: But the fact of the matter is that I don't
Speaker 1: think anyone really cares what President Jilenski wants. And I
Speaker 1: think Jilenski would agree with me because he's been asking
Speaker 1: for main battle thanks for the past seven months. The
Speaker 1: Ukrainian offensive has been effective, but it's been effective. Note
Speaker 1: note where it's been effective in the part of Ukraine
Speaker 1: where Russians have not really stated they want her kid.
Speaker 1: Her kid was logistically important, you know, they've kind of
Speaker 1: gone back and forth whether that's their goal. It's not
Speaker 1: part of dom bas and so that's the part that
Speaker 1: Ukrainian offensive has been very successful in. But I would
Speaker 1: argue that's the part that Russians have cared the least
Speaker 1: about of the four all blasts they've already conquered. And
Speaker 1: so I think that what's how opening is the West
Speaker 1: has given Ukraine in sufficient weapons to defend itself very effectively,
Speaker 1: to pursue a limited offensive. But if the West really
Speaker 1: wanted Ukraine to reconquer all of the parts of Ukraine,
Speaker 1: then two things would happen. They would have been given
Speaker 1: tanks seven months ago, which Germany has not done. Germany
Speaker 1: has asked Spain not to give leopards that Spain has
Speaker 1: to Ukraine. The US is equivocating on this issue, even
Speaker 1: when it comes to Abraham's main battle tanks. And second,
Speaker 1: much bigger help on air force, particularly ground assault aircraft.
Speaker 1: So you have some retired generals, for example, suggest why
Speaker 1: don't we give Ukraine E ten war hawks? That would
Speaker 1: make a really big difference. Ukraine doesn't have those two things.
Speaker 1: So I would argue that what Zilanski wants is kind
Speaker 1: of irrelevant because his constraints are that he doesn't have
Speaker 1: the military necessary to conquer parts of Ukraine where the
Speaker 1: Russians are entrenched, and that's by design. That's by design
Speaker 1: because Europeans ultimately are very concerned about Ukrainians sovereignty independence. Genuinely,
Speaker 1: I think European voters and policymakers don't want Ukraine to
Speaker 1: fall to Russia, but they kind of feel that's been accomplished.
Speaker 1: Do you think Europeans are going to be paying these
Speaker 1: natural gas prices eight months from now because of something
Speaker 1: called the nets? Most Europeans can find Donet's gonna map,
Speaker 1: So I would argue the answer is an absolute no.
Speaker 1: And that's what's very relevant for the markets. The idea
Speaker 1: that the West will retain the current level of support
Speaker 1: for Ukraine into the future, so the Ukraine can mop
Speaker 1: up some territories that are effectively the West Virginias and
Speaker 1: no offense to the Mountaineers, but West Virginias of Ukraine,
Speaker 1: I think is a very naive assumption that's not going
Speaker 1: to happen. The West is going to basically implicitly create
Speaker 1: a line of control by not supporting Ukraine enough, and
Speaker 1: that's been the case for seven months. Can I ask
Speaker 1: you to apply your framework to she shouldn't ping and
Speaker 1: the COVID zero policies that China is pursuing, because I
Speaker 1: think this has been sort of a question mark over
Speaker 1: what's going on there, like why exactly are the COVID
Speaker 1: restrictions politically beneficial to she? I know, he made a
Speaker 1: big point about how China cares about people's lives versus
Speaker 1: the West, where they're willing to just let people die
Speaker 1: in order to keep businesses open. So there's that, and
Speaker 1: there's some argument that maybe it helps, you know, fight
Speaker 1: capital outflows and things like that. But what exactly is
Speaker 1: he trying to get here? And what are the material
Speaker 1: constraints that are restricting or maybe even helping him pursue
Speaker 1: those goals. So I think that the political decision was
Speaker 1: not to accept, you know, Western vaccines, and that was
Speaker 1: a decision I guess made. What once you make that decision,
Speaker 1: I'm not sure it's illogical to dose zero covids, you know,
Speaker 1: so once you have taken perhaps an ideological and a
Speaker 1: political decision not to import Western vaccines, which are effective,
Speaker 1: once you've done that. Everything that's followed in China, I
Speaker 1: think you could make a logical, rational explanation for white
Speaker 1: China is doing that. It's population pyramid is heavily weighted
Speaker 1: towards the elderly. It doesn't have the hospital beds per
Speaker 1: capita that it would require to kind of let COVID
Speaker 1: run through the system, and for some reason it has
Speaker 1: been unable to get the elderly to take up the
Speaker 1: booster shots at a percentages necessary to kind of open
Speaker 1: up the economy. So once you you know, like once
Speaker 1: you accept that there was a political decision and ideological decision,
Speaker 1: once you accept that, like everything else that's happened makes sense.
Speaker 1: And that's not a popular view in the West because
Speaker 1: now we've become so anti Chinese in the West so
Speaker 1: thoroughly that everything that happens in China is interpreted as
Speaker 1: some sort of a Maoist coup, you know. And I
Speaker 1: think as an objective observer, and I bathed myself in
Speaker 1: aloof indifference to do my job. I can tell you
Speaker 1: that five years ago, everybody thought China was a friend,
Speaker 1: and now you know, everybody thinks it's evil, and so
Speaker 1: zero COVID policy is seen as some serve a manifestation
Speaker 1: of a maoist policy. But again, there may have been
Speaker 1: an ideological reason not to take Western vaccines. I accept that.
Speaker 1: But once they've done that, once they have a less
Speaker 1: effective vaccine, elderly population, not enough hospital beds, and for
Speaker 1: some bizarre reason they're incapable of getting the elderly in
Speaker 1: China to just take the third and fourth shots, then
Speaker 1: zero COVID policy kind of makes sense. And this is
Speaker 1: an important point because a lot of onshore managers in China.
Speaker 1: You know, I have an office in Shanghai, great analysts,
Speaker 1: they're great team, and we give a really good read
Speaker 1: when we produce research in China. We have I think
Speaker 1: a really great read on onshore managers in China, and
Speaker 1: they've been really hopeful that after the October Congress there
Speaker 1: will be a shift in zero COVID But if you
Speaker 1: take my view, which is that maybe there is a
Speaker 1: public health reason to have zero COVID policy given the
Speaker 1: initial political ideological decisions made two years ago, then it's
Speaker 1: not clear to me that those restrictions will be eased
Speaker 1: as much as many investors thinking. I think the onshore
Speaker 1: sentiment in China is starting to realize this. The shutdown
Speaker 1: of cheng Do, which is a twenty million people city
Speaker 1: recently a couple of weeks ago, has really upset sentiment domestically,
Speaker 1: and I think that, you know, there won't be an
Speaker 1: easy fix after October when it comes to this issue.
Speaker 1: How's how's your call option on Putin not being around
Speaker 1: in twelve months a going? So I think back in
Speaker 1: March you spoke to some of our colleagues on the
Speaker 1: What Goes Up podcast and you said something to the
Speaker 1: fact that you thought that Putin might not be there
Speaker 1: in another twelve months time. Are you still sticking with
Speaker 1: that one? Yes? So what I said was, if I
Speaker 1: was a book, I would set the line at twelve
Speaker 1: month not be taking the under. And then, uh, you
Speaker 1: know you guys in Bloomberg you tweeted it out to
Speaker 1: to the world, and I love one comment, by the way,
Speaker 1: I love Twitter because one genius went like, I give
Speaker 1: Marco Poppage twelve months and I'm taking the under, says
Speaker 1: Russian President Lussim Reputain, you know, and like that was
Speaker 1: that was that was that was awesome. Um So look
Speaker 1: what I would say is that, yeah, I think I mean,
Speaker 1: I might be cashing in on that option, maybe selling
Speaker 1: it to some enthusiast right now, but I'm I'm willing
Speaker 1: to stick with it. I think that Russian history is
Speaker 1: very clear. Russia is terrible at fighting offensive wars. We
Speaker 1: in the West, we have a perception, you know, propagated
Speaker 1: by the Russians themselves, that they are they have a
Speaker 1: glorious military history. And look, let's be objectively clear, Russia
Speaker 1: saved the West in the Second World War. I think
Speaker 1: that that has to be said, like that is something
Speaker 1: that I think Russians can take to the end of
Speaker 1: time that in World War Two they really were, like
Speaker 1: they fall the biggest battles, you know, fair Napoleon attacked Russia.
Speaker 1: It destroyed Napoleon. Fair. But those are situations in which
Speaker 1: somebody attacks Russia and they have such a huge territory
Speaker 1: they can extend the supply lines of their attackers, they
Speaker 1: can attack them. You know. That's that's the benefit of Russia.
Speaker 1: But those benefits are also disadvantages when they pursue offensive
Speaker 1: action because their own supply lines are so stretched and
Speaker 1: huge and logistically becomes a nightmare to support offensive operations.
Speaker 1: And so there have been several major wars in which
Speaker 1: Russia was an attacker and Agrester was on offense, where
Speaker 1: they spectacularly failed, and when they spectacularly failed, the immediate
Speaker 1: reaction was domestic political unrest. So, you know, I assumed
Speaker 1: that President Putin was a student of history. Apparently he's not,
Speaker 1: because what he has done, he has fallen into one
Speaker 1: of these traps. And I think that when policymakers in Russia,
Speaker 1: where leaders of Russia did that, they all ways met
Speaker 1: and sort of untimely end they were either retired like
Speaker 1: Cruise Shift did when he tried to test JFK over
Speaker 1: the Cuban missile crisis, or they had to implement reforms
Speaker 1: as Alexander the second had to do after his father
Speaker 1: failed to win the original Crimean War, or in nineteen
Speaker 1: o five when the Tsar had to implement reforms after
Speaker 1: the nineteen o five revolution in Russia which was sparked
Speaker 1: by the disastrous Japan War, you know, where basically Russia invaded,
Speaker 1: tried to defeat Japan and lost all three of its fleets.
Speaker 1: And then, of course in nineteen seventeen, which is the
Speaker 1: best example, Lenin used secret documents in communication that proved
Speaker 1: that the provisional government, which had overthrown the Tsar, was
Speaker 1: still pursuing World War One for imperial gain, and Leanin
Speaker 1: basically used that as a spark for the eventual Bolshevik Revolution.
Speaker 1: My point is that this repeats in Russia like constantly.
Speaker 1: I can't really point to a war where Russia was
Speaker 1: the aggressor and they won. And I think that's important,
Speaker 1: and I think that that's gonna resonate whether I'm right
Speaker 1: in five months or whether I'm writing two years, We'll see.
Speaker 1: The other thing that I've also been saying is like, look,
Speaker 1: the polling in Russia is kind of weird. You know,
Speaker 1: when Russians are asked if they support President Putin in
Speaker 1: the Russian military about them say yes. But when they're
Speaker 1: asked like how long do you think this war is
Speaker 1: gonna last? This is all from the Livada Center, they
Speaker 1: say less than a year, you know, We're like, so,
Speaker 1: less than a year. And when they're asked do you
Speaker 1: want the conflict to continue or should the negotiations begin
Speaker 1: right now? It's split. And I think that what's going
Speaker 1: to happen as Russians are disappointed on their own forecast
Speaker 1: of how long this is gonna last. The present of
Speaker 1: Russians who want negotiations to begin is going to rise,
Speaker 1: and so domestic politics are a critical constraint to how
Speaker 1: long this war goes. Now, right now, I think Sans
Speaker 1: are experiencing a natural reaction to this conflict. Patriotism is
Speaker 1: high there. They've been labeled pariah's and by the way,
Speaker 1: not just the policymakers. Regular Russians visa free travels gone.
Speaker 1: You know, they can't leave unless it's to Serbia, Georgia, Turkey.
Speaker 1: Right so, if you're a regular Russian, I'm pretty sure,
Speaker 1: even a liberal one, you're pretty angry at the West,
Speaker 1: You're angry at NATO, You're angry at the US. And
Speaker 1: those feelings are going to help President Putin maintain and
Speaker 1: prosecute this war for several more months. But those feelings
Speaker 1: of patriotism dissipate. They always do. They did in the
Speaker 1: US when the US invaded Iraq as well. Those feelings
Speaker 1: of patriotism dissipate as you start doing a balance sheet analysis.
Speaker 1: Has my life improved and what are the gains or
Speaker 1: goals of our conflicting in Ukraine? And right now, all
Speaker 1: I can see is that the goals of Russian and
Speaker 1: Ukraine are to win the West Virginia of Ukraine again.
Speaker 1: And I referred to West Virginia because you know, don
Speaker 1: Bus has called like that's it. And if you're a
Speaker 1: Russian in om Scrab Bloody Bolstock or sepiors Brick in Moscow,
Speaker 1: at some point six months from now, you're gonna be like,
Speaker 1: wait a minute, what what is this war about. I
Speaker 1: can't travel, you know, like there's like I have to
Speaker 1: buy a car without like anti lock breaking system. I
Speaker 1: can't fly air flocked planes anymore because they're not safe
Speaker 1: because we don't have replacement parts. I have to drive
Speaker 1: from O Scoop bloody voll Stock. Yeah, I gotta take
Speaker 1: the Translaborian railway. You know, these are the things that
Speaker 1: I think Russias are gonna start asking themselves over next
Speaker 1: six months. And that's why I do think that time
Speaker 1: is running out for the Kremlin to get out of
Speaker 1: this very very dangerous situation. All right, Marco, we're gonna
Speaker 1: have to leave it there. But thank you so much
Speaker 1: for coming on all the lots. I'm glad we could
Speaker 1: finally do this conversation. And it's been a really interesting discussion.
Speaker 1: So thank you. Yeah, that was great, Marco, thank you
Speaker 1: so much. Thank you Tracy, thank you Joe. This just
Speaker 1: proves my point that it's impossible to have a conversation
Speaker 1: about Russia without someone bringing up World War Two. And
Speaker 1: also I just feel like there's so many like especially
Speaker 1: like I don't know, veteran market people. I just feel
Speaker 1: like a vendor diagram of like veteran investor person who
Speaker 1: sits on their couches, has watched a lot of World
Speaker 1: War two documentaries has a two circles with a lot
Speaker 1: of overlap. Yeah, but it was I mean, it was
Speaker 1: really nice to get that sort of historical depth from Marco.
Speaker 1: What I would say is I thought his point about
Speaker 1: the war not necessarily coming to a definitive end, but
Speaker 1: sort of the stasis idea that seems realistic. I thought
Speaker 1: that was really interesting too. And it's one of these
Speaker 1: things that it's like people want to look for some end, right,
Speaker 1: or some victory or some capitulation or some side giving
Speaker 1: up white flag or something like that. But I think,
Speaker 1: you know, look around, and he mentioned I think there
Speaker 1: in North Korean war is like an extreme example, but
Speaker 1: I think if you look around the world, you probably
Speaker 1: do see a lot of situations in which wars don't
Speaker 1: really end with a capital e, and there are sort
Speaker 1: of occasional skirmishes, but they're just some sort of like
Speaker 1: permanently contested territory or some new territory that one entity
Speaker 1: doesn't accept but clearly has some sort of political autonomy,
Speaker 1: and that does not seem like an implausible direction that
Speaker 1: this would go well. I mean, even if you look
Speaker 1: at the example of Russia annexing Crimea in I mean,
Speaker 1: that kind of didn't end. There was no definitive like
Speaker 1: endpoint on that. It just kept going and eventually kind
Speaker 1: of morphed into the situation that we have today. You
Speaker 1: know that one that's interesting too. You mentioned that because
Speaker 1: I forget we have had a couple episodes I think
Speaker 1: um talking about how markets got over that really fast
Speaker 1: and didn't even stop, didn't even stop, you know, buying
Speaker 1: sovereign debt or anything of Russia's after that, despite like
Speaker 1: it's clear like impulse to sort of wage offensive war.
Speaker 1: And so to Marco's point, whether it's may be uncomfortable
Speaker 1: for us, but markets can be pretty quick about forgetting
Speaker 1: the past. Yeah, that was the episode with one of
Speaker 1: my favorites mittuk late. But it's true, right, you had
Speaker 1: this act of aggression from a country that, you know,
Speaker 1: traditionally by the West has not been seen as as
Speaker 1: a friendly ally at all. And the most that happened
Speaker 1: was people put in, you know, some some language into
Speaker 1: their bond documents saying like, it's possible that Russia invades
Speaker 1: another country again, They've done it before. And then life
Speaker 1: just continued and the government kept tapping the bond market
Speaker 1: with relatively like little penalty. Yeah, and you know, I
Speaker 1: just just in general, you mentioned history, and you started
Speaker 1: we started with the World War two conversation, and as
Speaker 1: Marco pointed out, you know, theorists of war and geopolitics
Speaker 1: often like to come up with like grand you know,
Speaker 1: sort of psychological or psychohistorical explanations for impulses like how
Speaker 1: crucial this concept Ukraine is in some sort of Russian
Speaker 1: Russian self identification of what it's true content nation should be,
Speaker 1: or something like that. It's not to say that those
Speaker 1: are legitimate or that Putin himself might not have some
Speaker 1: of those same impulses, but those are really hard to
Speaker 1: like grasp. Whereas certain sort of as he puts it,
Speaker 1: the materialist approach, is Russia capable of launching a robust,
Speaker 1: defensive war with stretched supply lines Like these are probably
Speaker 1: good places to start in one's analysis, like things that
Speaker 1: are a bit more concrete and material. Yeah, I think
Speaker 1: that makes sense. All right, Well, we could talk about
Speaker 1: this for a long time, but shall we leave it there?
Speaker 1: Let's leave it there. Okay. This has been another episode
Speaker 1: of the All Thoughts podcast. I'm Tracy Alloway. You can
Speaker 1: follow me on Twitter at Tracy Alloway and I'm Joe
Speaker 1: Wisn't All. You could follow me on Twitter at the Stalwork.
Speaker 1: Follow our us Marco paypage. He's on Twitter at Geo
Speaker 1: Underscore Papa. Follow our producer Kerman Rodriguez at Kerman Arman
Speaker 1: and check out all of our podcasts Bloomberg under the
Speaker 1: handle at podcasts. Thanks for listening.